From a short-term perspective, two major pressures—fiscal supply and AI corporate financing—are keeping long-term Treasury yields elevated. If the midterm elections produce a divided Congress, fiscal expectations could ease marginally, and the risk-reward for long-duration bonds is increasingly becoming attractive.
Recent US economic data has consistently weakened: July retail sales fell 0.6% month-over-month, significantly missing the market expectation of a 0.1% increase. Combined with softer nonfarm payrolls and inflation data, multiple economic indicators continue to cool. The market has scaled back expectations for Fed rate hikes, with the probability of a September hike falling to around 30%. Yield curve steepening continues to intensify: short-end Treasury yields have declined, but the 10-year yield has broken above 4.7%, while the 30-year yield has reached 5.3%, a two-decade high. With the economy weakening and rate hike expectations cooling, why do long-end yields remain stubbornly high? What exactly is the bond market pricing in?
Why Long-End Yields Won't Come Down: Supply Pressure Keeps Pushing Up Term Premiums
1. Fiscal issuance and deficit concerns: The US fiscal deficit reached a record $432 billion in July, pushing total US government debt toward $40 trillion. Last week, the Congressional Budget Office (CBO) raised its deficit projection for fiscal 2026 to $2.1 trillion from the $1.9 trillion forecast in February, primarily due to tariff revenue falling well short of earlier estimates following a Supreme Court ruling. Rising debt pressure has made the buyer base for US Treasuries more price-sensitive, driving term premiums higher. Data released by the Treasury Department on Monday showed foreign holdings of US debt declined in June, with Japan and China recording the largest reductions.
2. Surge in bond issuance financing needs from the AI supply chain: Companies like Amazon, Alphabet, Nvidia, and AMD have been aggressively issuing large-scale, long-duration dollar bonds to fund capital expenditures on data centers and computing infrastructure. As of early August 2026, year-to-date dollar bond issuance by the top US cloud and AI tech giants has exceeded $220 billion. Recently, Nvidia also reached a $500 billion financing cooperation agreement, further intensifying concerns about the supply of long-duration assets. Bond investors are growing wary of the potential impact of these contingent liabilities materializing in the future.
Key Upcoming Catalyst: The November Midterm Elections
Looking ahead, the US midterm elections on November 3, 2026, will be the core variable influencing the fiscal path and, in turn, the trajectory of long-end bonds. Market consensus suggests Republicans will likely hold the Senate, but control of the House remains highly uncertain: Democrats need a net gain of just three seats to secure a House majority. Based on current market pricing, a divided government is the most probable scenario. In that case, upward pressure on long-end yields is expected to ease, and the Treasury yield curve may flatten.
Summary
1. In the short term, fiscal supply and AI corporate financing pressures are keeping long-term Treasury yields elevated.
2. If the midterm elections result in a divided Congress, fiscal expectations could ease marginally, and the value proposition for long-bond positioning is becoming increasingly apparent.
Risk Warning and Disclaimer: Markets carry risks, and investment requires caution. This article does not constitute personal investment advice and does not account for individual investors' specific investment objectives, financial situations, or needs. Investors should consider whether any opinions, views, or conclusions in this article align with their particular circumstances. Investment decisions made based on this content are at the investor's own risk.
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